The Federal Reserves’ preferred measure of inflation fell in May and offered hints that consumer spending might be slowing.
The combination led to some US dollar selling as the quarter winds down. The move might have been exagerrated because USD traffic has been one-way all week led by a series of surprisingly strong data points. Today, core inflation was at 4.6% compared to 4.7% expected.
In reaction, USD/JPY fell to 144.35 from 144.60 but has since recouped much of the declines as risk appetite perks up due to less fear about higher Fed rates. The euro, pound and commodity currencies also climbed and have held onto the gains.
EUR/USD 10 mins
The spending side was also a factor with real personal consumption flat in the month and the April figure revised to +0.2% from +0.5%. It paints a picture of a gently slowing economy and inflation falling towards target. Headline PCE prices were up 3.8% y/y compared to 4.4% in the previous month.
US core PCE
I expect to see more flow-driven trade today, and particularly at the 4 pm fix in London.